Thermo Fisher Scientific Inc. (NYSE:TMO): Can Growth Justify Its June Share Price?

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Thermo Fisher Scientific Inc. (NYSE:TMO) is considered a high growth stock. However its last closing price of $295.55 left investors wondering whether this growth has already been factored into the share price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

View our latest analysis for Thermo Fisher Scientific

Has the TMO train has slowed down?

Investors in Thermo Fisher Scientific have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. The consensus forecast from 16 analysts is buoyant with earnings forecasted to rise significantly from today’s level of $7.905 to $11.063 over the next three years. On average, this leads to a growth rate of 14% each year, which indicates a solid future in the near term.

Is TMO available at a good price after accounting for its growth?

Thermo Fisher Scientific is looking rather expensive based on its price-to-earnings (PE) ratio of 37.39x. This illustrates that Thermo Fisher Scientific is overvalued compared to the US market average ratio of 17.73x , and undervalued based on its latest annual earnings update compared to the Life Sciences average of 38.97x .

NYSE:TMO Price Estimation Relative to Market, June 25th 2019
NYSE:TMO Price Estimation Relative to Market, June 25th 2019

We already know that TMO appears to be undervalued based on its PE ratio, compared to the industry average. However, to properly examine the value of a high-growth stock such as Thermo Fisher Scientific, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 37.39x and expected year-on-year earnings growth of 14% give Thermo Fisher Scientific a quite high PEG ratio of 2.63x. This means that, when we account for Thermo Fisher Scientific’s growth, the stock can be viewed as overvalued , based on fundamental analysis.

What this means for you:

TMO’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Are TMO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has TMO been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of TMO’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.